Oil retreats as China’s COVID resurgence imperils demand outlook

Oil fell as China issued more lockdowns, raising fresh concerns about demand slowing in the world’s biggest crude importer.

Futures in New York fell almost US$8 to settle just shy of US$106 a barrel on Monday. Markets sold off after authorities in Shanghai said they will lock down half of the city in turns for mass Covid-19 testing. Prices remained lower even after OPEC+ signaled it’s likely to stick to plans for a modest supply increase when they meet Thursday.

“China oil demand is approximately 15 million barrels per day,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “The magnitude of the selloff reflects fears that Covid lockdowns in China could spread, significantly impacting demand at a time when the oil market is trying to find alternatives to Russian oil supplies.”

Traders added that in the wake of historic volatility many market participants are just covering their positions, keeping liquidity at the lowest level in years and leading to outsized moves on any news. With hedges becoming more time consuming and expensive, it could disrupt real-world deliveries of crude oil if the situation doesn’t improve.

Russia’s invasion of Ukraine continues to disrupt availability of key commodities, adding to inflationary pressures on the global economy. Despite the day’s selloff, oil is still heading for a fourth month of gains as a tight market is exacerbated by the shunning of Russian supplies by buyers. The country’s exports from March 17-23 fell by more than a quarter from the previous week, according to industry data.

On Monday, United Arab Emirates Energy Minister Suhail Al-Mazrouei said additional crude supplies won’t be added if the market is balanced and resources are in the market. If no alterations are made, the cartel will ratify an increase of 430,000 barrels a day for the month of May as previously announced.


  • WTI for May delivery fell US$7.94 to settle at US$105.96 a barrel in New York
  • Brent for May settlement lost US$8.17 to settle at US$112.48 a barrel

Demand concerns are starting to emerge with the spread of the virus in China. Shanghai — a city of 25 million people — will first lock down areas east of the Huangpu River, which includes its financial district and industrial parks, for four days starting Monday. Then the restrictions will shift to the city’s west for another four days, according to a statement from the local government.

A temporary pause in hostilities by Yemen’s Houthis against Saudi Arabia was also contributing to lower oil prices on Monday. The group’s rebel leader announced a three-day truce on Saturday after an escalation of attacks on key Saudi infrastructure over the past week, according to a TV report.

The US, meanwhile, said reviving a nuclear deal with Iran is not imminent after recent requests from Tehran that included Washington removes the Islamic Revolutionary Guard Corps from its list of terrorist organizations. Iran is an ally of Russia, and its war in Ukraine is also complicating negotiations.

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